Inside Asian Gaming

5 Editor and Publisher Kareem Jalal Director João Costeira Varela Business Development Manager Ricardo Carvalho Operations Manager Rita Horta Contributors Octo Chang, Ben Lee, Glen McCartney Photography Ike Graphic Designers Ricardo Borges Karen Yiu Editorial Inside Asian Gaming is published by Must Read Publications Ltd Rua de S. Domingos, nr 16-i, Ed.“Hin Lei”7A - Macau Tel: (853) 6646 0795 For subscription enquiries, please email [email protected] or call Rita Horta Tel: (853) 28 389 055 For advertising enquiries, please email [email protected] or call Ricardo Carvalho Tel: (853) 6682 8475 www.asgam.com Macau had 2,762 gaming tables at the end of 2006 – a doubling in stock from 2005.The growth in supply led to a 28% dilution in the average win per table, from US$10,800 per table per day in the fourth quarter of 2005 to US$7,800 in the fourth quarter of 2006. Deutsche Bank analyst Karen Tang forecasts the dilution to con- tinue:“With a strong casino opening pipeline over the next 3 years, we expect this overall unit table win to be further diluted down to US$4,000/table/day by 2008F. Even then, it would still be almost 1.5x the current Las Vegas blended average of around US$2,600/ table/day.” The high returns from putting in more gaming tables in Macau dis- courage investment in non-gaming attractions. In an interview with Inside Asian Gaming , Frank McFadden, president of joint ventures and business development at Stanley Ho’s SJM, says the erstwhile monopoly Macau casino operator will retain its gaming focus. SJM unveiled the glittering Grand Lisboa in February, and while the plush property is a marked departure from Dr Ho’s cramped, dimly- lit monopoly-era casinos, it does not feature any notable non-gam- ing offerings beyond its hotel rooms and dining venues. Macau’s other new casino operators, on the other hand, and par- ticularly Las Vegas Sands Corp (LVS) subsidiary Venetian Macau, are feverishly investing billions to create glitzy Las Vegas-style non- gaming facilities and spectacles.The first milestone will come in the middle of this year, with the opening of the sprawling US$2.6 billion Venetian Macau, featuring 3,000 suites, 1.2 million sq. ft of conven- tion and exhibition space, a 350-store mall, a 15,000 seat stadium, and dining and entertainment options aplenty. The Venetian Macau will also soon be joined by a string of interna- tionally renowned hotel brands along Macau’s Cotai Strip, where LVS is spearheading the development of “Asia’s Las Vegas” (for more details, see Name Draws on page 10). Macau’s other casino opera- tors are also set to unveil major integrated resorts on Cotai, includ- ing Galaxy’s Cotai Mega Resort and Melco PBL’s City of Dreams, both scheduled to open in 2008. For now, SJM has no plans to develop mega resorts. Mr McFadden says SJM“may build a US$3 billion resort one day, but it’s not in my immediate plan to invest that amount of money because the more equity you spend, the more revenue you have to generate to cover that equity.”He adds:“If there are seven international shows not sold out, why would you build an international show stadium? You’d look at how the market is evolving before you commit to it.” The Future’s Grand While the returns from non-gaming investments are uncertain, the rationale for pursuing them is clear. First, declining wins per table and margins on the VIP business (due to rising junket commissions) are driving casino operators to seek to maintain profit growth by tapping alternative revenue streams. Non-gaming draws will also prove important to casinos in attracting customers in an increasingly crowded and competitive marketplace.The non-gaming draws, in turn, will create a new reason to come to Macau. and extend the aver- age visitor stay, leading to greater visitation of the city’s casinos. Non-gaming revenues have a lot of potential to grow in Macau, from the current estimated 5-10% of total revenues of casino op- erators, to closer to the 50% share at Las Vegas casino resorts. Gaming revenue in Macau is also taxed at a much higher rate than in Vegas, and relative to non-gaming revenue. Macau’s effective gaming tax rate is 39% (35% as direct tax and a further 3-4% as compulsory social and welfare contributions) compared to 6.8% in Nevada and 8% in Atlantic City.Thus, developing non-gaming rev- enues could prove particularly beneficial to the margins of Macau casino operators. Operators at all levels have been working to improve their facilities and non-gaming offerings in response to competition. In this issue’s Tour of the Properties, we visit Macau’s Rio Hotel and Casino, which despite its four-star designation and price point offers conspicuous luxury in order to compete with other casino hotels in its vicinity. Competition will also intensify across the region. Singapore’s two ambitious casino-centred integrated resorts will open in 2009 – including LVS’ US$3.6 billion Marina Bay Sands – and Japan is expected to legalise casinos soon, as discussed in Japan’s Casino Opportunity on page 16. Macau will likely retain the title of the region’s top-grossing casino destination, although Japan boasts considerable domestic demand and one of its cities may eventually emerge as a contender. Singa- pore and other Asian jurisdictions could give Macau more of a run for its non-gaming money, however. The winners are yet to be determined, but what is certain is that all of Asia’s future casino developments are likely to get ever-grander both in scale and in terms of their range of offerings. Kareem Jalal We crave your feedback. Please send your comments to [email protected]

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